Demat Account

The term Demat, in India, reIers to a dematerialised account Ior individual Indian citizens to
trade in listed stocks or debentures, required Ior investors by The Securities Exchange Board oI
India (SEBI). In a demat account, shares and securities are held electronically instead oI the
investor taking physical possession oI certiIicates. A Demat Account is opened by the investor
while registering with an investment broker (or sub broker). The Demat account number is
quoted Ior all transactions to enable electronic settlements oI trades to take place.
Access to the Demat account requires an internet password and a transaction password. TransIers
or purchases oI securities can then be initiated. Purchases and sales oI securities on the Demat
account are automatically made once transactions are conIirmed and completed.
Advantages of Demat
A Demat account reduces brokerage charges (which are usually around 2.5°), makes
pledging/hypothecation oI shares easier, enables quick ownership oI securities on settlement
resulting in increased liquidity, avoids conIusion in the ownership title oI securities, and provides
easy receipts Ior public issue allotments or IPOs.
A Demat account also helps avoid problems typically associated with physical share certiIicates,
Ior example: delivery Iailures caused by signature mismatch, postal delays and loss oI certiIicate
during transit. Further, it eliminates the risks associated with Iorgery and loss due to damaged
stock certiIicates. Demat account holders also avoid stamp duty (as against 0.5 per cent payable
on physical shares) and Iilling up oI transIer deeds. Demat account holders usually obtain
quicker receipts oI beneIits like stock splits and bonuses

Demat Options
There are many hundreds oI Depository Participants (DPs) oIIering the Demat account Iacility in
India as oI Sept, 2011. A comparison oI the Iees charged by diIIerent DPs is detailed below.
There are a Iew distinct advantages oI having a bank as a DP. Having a Demat account with a
bank DP, usually provides quick processing, accessibility, convenience, and online transaction
capability to the investor. Generally, banks credit the Demat account with shares in case oI
purchase, or credit a savings accounts with the proceeds oI a sale on the third day. Banks are also
advantageous because oI the number oI branches they have. Some banks give the option oI
opening a demat account in any branch, while others restrict themselves to a select set oI
branches. Some private banks also provide online access to the demat account. So an investor
can conveniently check details oI his/her holdings, transactions and status oI requests through
his/her bank's net-banking Iacility. A broker who acts as a DP may not be able to provide these
edit] Fees Involved
There are Iour major charges usually levied on a demat account: Account opening Iee, annual
maintenance Iee, custodian Iee and transaction Iee. Charges Ior all Iees vary Irom DP to DP.
[edit] Account-opening fee
Depending on the DP, there may or may not be an opening account Iee. Private banks, such as
HDFC Bank and AXIS Bank, do not have one. However, players such as ICICI Bank, Globe
Capital, Karvy Consultants, Bajaj Capital Limited and State Bank oI India do impose an opening
Iee. Most players levy this when re-opening a demat account. However, the Stock Holding
Corporation oIIers a liIetime account opening Iee, which allows the investor to hold on to his/her
demat account Ior a long period. The Iee is also reIundable.
[edit] Annual maintenance fee
This is also known as Iolio maintenance charges, and is generally levied in advance.
[edit] Custodian fee
This Iee is charged yearly and depends on the number oI securities (i.e. ISINs) held in the
account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs will not charge
custody Iee Ior an ISIN on which the companies have paid one-time custody charges to the
[edit] Transaction fee
The transaction Iee is charged Ior crediting/debiting securities to and Irom the account on a
monthly basis. While some DPs, such as SBI, charge a Ilat Iee per transaction, HDFC Bank and
ICICI Bank peg the Iee to the transaction value, which is subject to a minimum amount. The Iee
also diIIers based on the kind oI transaction (buying or selling). Some DPs charge only Ior
debiting the securities while others charge Ior both. Some DPs also charge the investor even iI
the instruction to buy/sell Iails or is rejected. In addition, service tax is also charged by the DPs.
In addition to the other Iees, the DP also charges a Iee Ior converting the shares Irom the
physical to the electronic Iorm or vice-versa. This Iee varies Ior both demat (physical-to-
electronic) and remat (electronic-to-physical) requests. For demat, some DPs charge a Ilat Iee per
request in addition to the variable Iee per certiIicate, while others charge only the variable Iee.
For instance, Stock Holding Corporation charges Rs 25 as the request Iee and Rs 3 per certiIicate
as the variable Iee. However, SBI charges only the variable Iee, which is Rs 3 per certiIicate.
Remat requests also have charges akin to that oI demat. However, variable charges Ior remat are
generally higher than demat.
Some oI the additional Ieatures (usually oIIered by banks) are as Iollows. Some DPs oIIer a
Irequent trader account, where they charge Irequent traders at lower rates than the standard
charges. Demat account holders are generally required to pay the DP an advance Iee Ior each
account that will be adjusted against the various service charges. The account holder needs to
raise the balance when it Ialls below a certain amount prescribed by the DP. However, iI you
also hold a savings account with the DP you can provide a debit authorisation to the DP Ior
paying this charge. Finally, once you choose your DP, it would be prudent to keep all your
accounts with that DP, so that tracking your capital gains liability is easier. This is because when
calculating capital gains tax, the period oI holding will be determined by the DP and diIIerent
DPs Iollow diIIerent methods. For instance, ICICI Bank uses the Iirst in Iirst out (FIFO) method
to compute the period oI holding. The prooI oI the cost oI acquisition will be the contract note.
The computation oI capital gains is done account-wise.
edit] Opening a Demat Account
First, an investor has to approach a DP and Iill up an account opening Iorm. The account opening
Iorm must be supported by copies oI any one oI the approved documents to serve as prooI oI
identity (POI) and prooI oI address (POA) as speciIied by SEBI. An investor must have his/her
PAN card in original at the time oI opening oI account (mandate eIIective Irom April 1, 2006).
All applicants should carry original documents Ior veriIication by an authorized oIIicial oI the
depository participant, under his signature. Further, the investor has to sign an agreement with
DP in a depository prescribed standard Iormat, which details rights and duties oI investor and
DP. DP should provide the investor with a copy oI the agreement and schedule oI charges Ior
their Iuture reIerence. The DP will open the account in the system and give an account number,
which is also called BOID (BeneIiciary Owner IdentiIication number). The DP may revise the
charges by giving 30 days notice in advance. SEBI has rationalised the cost structure Ior
dematerialisation by removing account opening charges, transaction charges Ior credit oI
securities, and custody charges vide circular dated January 28, 2005. Further, SEBI has vide
circular dated November 9, 2005 advised that with eIIect Irom January 9, 2006, no charges shall
be levied by a depository on DP and consequently, by a DP on a BeneIiciary Owner (BO) when
a BO transIers all the securities lying in his account to another branch oI the same DP or to
another DP oI the same depository or another depository, provided the BO Account(s) at
transIeree DP and at transIeror DP are one and the same, i.e. identical in all respects. (Ravi
kumar Gupta, 2011 in Angel Broking works.) In case the BO Account at transIeror DP is a joint
account, the BO Account at transIeree DP should also be a joint account in the same sequence oI
edit] Disadvantages of Demat
O 1radlng ln securlLles may become unconLrolled ln case of demaLerlallzed securlLlesŦ
O L ls lncumbenL upon Lhe caplLal markeL regulaLor Lo keep a close waLch on Lhe Lradlng ln
demaLerlallzed securlLles and see Lo lL LhaL Lradlng does noL acL as a deLrlmenL Lo lnvesLorsŦ
O or demaLerlallzed securlLlesţ Lhe role of key markeL players such as sLockŴbrokers needs Lo be
supervlsed as Lhey have Lhe capablllLy of manlpulaLlng Lhe markeLŦ
O ,ulLlple regulaLory frameworks have Lo be conformed Loţ lncludlng Lhe ueposlLorles AcLţ
8egulaLlons and Lhe varlous 8yŴLaws of varlous deposlLorlesŦ
O AgreemenLs are enLered aL varlous levels ln Lhe process of demaLerlallzaLlonŦ 1hese may cause
anxleLy Lo Lhe lnvesLor deslrous of slmpllclLyŦ

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